GBP/NZD – Range Bound (Daniel Johnson)

GBP EUR Looks to Employment Figures for Support

What will it take to see Sterling Rally?

There has been little movement on GBP/NZD over the last month. It is currently range bound between 1.74-1.78. I am of the opinion Sterling is undervalued, but it will be very difficult for Sterling to rally due the UK’s political situation and the uncertainty surrounding Brexit talks.

We have also seen negative UK data releases across the board which has done few favours for the pound. We have witnessed a dramatic rise in inflation of late which is a direct cause of the vote to leave the EU. The weak value of the pound is causing imports to become more expensive. The companies buying these goods then pass on the price increase to the consumer, this is fine, providing the consumer still chooses to purchase goods at the inflated prices. Wage growth must keep up with the rise in inflation in order to have a stable economy, at present this is not the case. Inflation and wage growth data will be crucial to Sterling value moving forward.

Dairy products make up over 20% of New Zealand’s exports and as such the Dairy price has a substantial influence on New Zealand Dollar value. There has been a contraction of late, but this has not had the same influence on GBP/NZD as normally due to the state of the UK both politically and economically.

Until we have a stable government in place and there is some clarity on Brexit negotiations Sterling will struggle to make gains on the New Zealand Dollar.

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